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Housing ETFs in Focus as Mortgage Rates Take a Favorable Turn
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While the 30-year mortgage rate has improved and is again on a downward trajectory, it is crucial to acknowledge that it is still relatively high. However, mortgage rates are better than they were in May 2024, currently standing at 6.47% (as of Aug 8), their lowest point in over a year, down from 7.22% in early May.
According to Yahoo Finance, the average rate for a 15-year fixed mortgage fell to 5.63% from 5.99% the previous week, and significantly lower than the 6.34% rate from a year ago.
With growing expectations of interest rate cuts by 1% by this year-end, the housing market seems set for some much-needed relief.
Fed Speeds Up Rate Cuts
Following a sharp sell-off earlier this week due to a disappointing July jobs report and the unwinding of yen-funded carry trades, market participants have intensified their bets on the Fed, adopting a faster approach. They are anticipating more significant interest rate cuts than previously forecast.
According to the CME FedWatch Tool, the Fed will begin reducing interest rates in September, with a 46.5% probability that they will decrease to 5-5.25% and a 53.5% likelihood of them falling to 4.75-5%.
The likelihood of a further fall in interest rates becomes more prominent toward December, with the rates potentially dropping to 4.25-4.5%, supported by a likelihood of 46.6%. Interest rates may witness a further drop, falling to 4-4.25%, with a 25% likelihood supporting this estimate.
Increasing market expectations of interest rates falling by 100 bps by the end of 2024, industry experts turn optimistic about mortgage rates trending favorably throughout the year. A decline in the Federal funds rate, which typically has an indirect impact on the mortgage rate, may prove advantageous for borrowers.
Reignited Buyer Interest
According to Redfin, as quoted on Reuters, with the 30-year mortgage rate plunging to its lowest level in over a year, prospective buyers have resumed house-hunting, reflecting a more optimistic market outlook and improved affordability.
Rising refinancing activity also adds to the optimistic outlook for the market. According to the Mortgage Bankers Association, as quoted on Yahoo Finance, homeowners are seizing the opportunity to refinance as rates have eased, with refinance applications jumping 16% last week.
ETFs in Focus
Increased investor confidence that the Fed will implement a rate cut this September paints a rosy near-term outlook for the housing market, suggesting a continued downtrend in mortgage rates. Projections of a drop in mortgage rates increase the purchasing power of potential homeowners and investor interest.
Below, we have highlighted a few funds for investors to capitalize on the market’s optimistic outlook.
iShares U.S. Home Construction ETF (ITB - Free Report) ) has gained 19.26% over the past month and 36.55% over the past year.
SPDR S&P Homebuilders ETF (XHB - Free Report) ) has gained 16.85% over the past month and 40.84% over the past year.
Invesco Building & Construction ETF (PKB - Free Report) ) has gained 12.46% over the past month and 36.92% over the past year.
Hoya Capital Housing ETF (HOMZ - Free Report) ) has gained 11.05% over the past month and 20.72% over the past year.
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Housing ETFs in Focus as Mortgage Rates Take a Favorable Turn
While the 30-year mortgage rate has improved and is again on a downward trajectory, it is crucial to acknowledge that it is still relatively high. However, mortgage rates are better than they were in May 2024, currently standing at 6.47% (as of Aug 8), their lowest point in over a year, down from 7.22% in early May.
According to Yahoo Finance, the average rate for a 15-year fixed mortgage fell to 5.63% from 5.99% the previous week, and significantly lower than the 6.34% rate from a year ago.
With growing expectations of interest rate cuts by 1% by this year-end, the housing market seems set for some much-needed relief.
Fed Speeds Up Rate Cuts
Following a sharp sell-off earlier this week due to a disappointing July jobs report and the unwinding of yen-funded carry trades, market participants have intensified their bets on the Fed, adopting a faster approach. They are anticipating more significant interest rate cuts than previously forecast.
According to the CME FedWatch Tool, the Fed will begin reducing interest rates in September, with a 46.5% probability that they will decrease to 5-5.25% and a 53.5% likelihood of them falling to 4.75-5%.
The likelihood of a further fall in interest rates becomes more prominent toward December, with the rates potentially dropping to 4.25-4.5%, supported by a likelihood of 46.6%. Interest rates may witness a further drop, falling to 4-4.25%, with a 25% likelihood supporting this estimate.
Increasing market expectations of interest rates falling by 100 bps by the end of 2024, industry experts turn optimistic about mortgage rates trending favorably throughout the year. A decline in the Federal funds rate, which typically has an indirect impact on the mortgage rate, may prove advantageous for borrowers.
Reignited Buyer Interest
According to Redfin, as quoted on Reuters, with the 30-year mortgage rate plunging to its lowest level in over a year, prospective buyers have resumed house-hunting, reflecting a more optimistic market outlook and improved affordability.
Rising refinancing activity also adds to the optimistic outlook for the market. According to the Mortgage Bankers Association, as quoted on Yahoo Finance, homeowners are seizing the opportunity to refinance as rates have eased, with refinance applications jumping 16% last week.
ETFs in Focus
Increased investor confidence that the Fed will implement a rate cut this September paints a rosy near-term outlook for the housing market, suggesting a continued downtrend in mortgage rates. Projections of a drop in mortgage rates increase the purchasing power of potential homeowners and investor interest.
Below, we have highlighted a few funds for investors to capitalize on the market’s optimistic outlook.
iShares U.S. Home Construction ETF (ITB - Free Report) ) has gained 19.26% over the past month and 36.55% over the past year.
SPDR S&P Homebuilders ETF (XHB - Free Report) ) has gained 16.85% over the past month and 40.84% over the past year.
Invesco Building & Construction ETF (PKB - Free Report) ) has gained 12.46% over the past month and 36.92% over the past year.
Hoya Capital Housing ETF (HOMZ - Free Report) ) has gained 11.05% over the past month and 20.72% over the past year.